Am I too old to get a home loan?

One of a property lender’s most important jobs is to make sure a borrower can manage the typical home loan term of 30 years. This becomes even more critical from the age of 50 because that 30-year term can see a borrower well into retirement.

“We have a retirement age in this country of 67, and yes, a lot of people work past that,” says Tracy Kearey, director of Mortgage Advice Bureau in Brisbane.

“But the banks want to make sure that, when someone does retire, they can meet that mortgage and they’ve still got somewhere to live.”

Is there a home loan age limit in Australia?

Kearey makes it clear that a lender can’t refuse a loan application purely based on age.

Federal government legislation like the Age Discrimination Act prevents such blatant bias. However, under the “responsible lending” laws, a lender must ensure that every home loan application it approves makes sense and doesn’t place borrowers in any financial difficulty.

“The legislation is there to protect the client,” Kearey says. “We have to make sure that the client is always protected in any situation, whether it’s age or not.”

So, what can older borrowers do to increase their chances of a successful application?

Tips for older borrowers applying for a loan

Keep your credit score high

Lenders use your credit score or rating, together with their own risk criteria, to decide if you’re a safe bet.

According to moneysmart.gov.au, your credit score is based on personal and financial information about you that’s kept in your credit report. This will include the amount of money you’ve borrowed, the number of credit applications you’ve made and whether you pay on time.

Credit cards, utility bills and personal loans all come into play, as do any bankruptcies or debt agreements, court judgments, or personal insolvency agreements.

Kearey also warns potential borrowers about buy now, pay later schemes, which count towards your tally of credit applications.

“What they’re saying to you is you can buy this now, but you’ll make the repayments over four weekly payments or eight weekly payments, so they’re actually doing a credit hit and can have quite a big impact on your file,” she says.

If you plan to shop around for a home loan, it can work in your favour to engage a mortgage broker.

“We would do the research first before we would apply with a lender so that you don’t have any unnecessary credit hits,” Kearey says.

Plan your exit strategies

Kearey says lenders need to have a clear understanding of your exit strategy if the term of your loan extends beyond retirement age.

She gives the example of a 49-year-old loan applicant who plans to retire at 67, which leaves them 18 years to make repayments using a regular income.

A broker or lender will calculate the loan balance at 67, then do a conservative calculation of the value of any assets and your likely super balance to help determine if there will be adequate funds to continue to service a mortgage in retirement or to pay out the loan.

A plan to transition from a larger to a smaller home is another common exit strategy.

“When you retire, you could downsize,” Kearey says. “The amortised loan is paid down, and the house that they’re selling has gone up in value. So they could have enough to go and buy a property unencumbered and still have their super to retire on.”

Kearey says it’s in everyone’s interests to ensure a borrower is protected.

“It all still comes back to responsible lending … making sure the client has got income and equity, a good credit score,” she says.

“The majority of lenders assess on an individual situation, but obviously, we do more checks and balances when someone is a bit older to make sure they are looked after for the whole journey.”

Case study

Having relocated to Australia and built up equity in his home, 54-year-old Louis Chan* was looking to refinance and consolidate his debt. He felt confident about making repayments for the foreseeable future and had post-retirement plans to downsize and put his super into play.

The first lender the Mortgage Advice Bureau approached wasn’t comfortable with Chan’s exit strategy.

“It was marginal because the bank didn’t feel the exit strategy was strong enough, based on the fact they had a requirement to have a minimum amount of super,” Kearey says.

Having completed all the requisite checks, she was surprised and disappointed by the setback but points out that sometimes a lender hits a limit on a particular type of borrower, such as when investment lending came under the spotlight in 2021.

Fortunately, the second lender that Kearey approached quickly approved the loan.

“They would accept the downsizing and the super position, and they could clearly see that the client had so much equity in their home as well, and that they would be able to pay that debt down,” she says.

*Name changed for privacy